While ETF's are still considered a relatively new investment vehicle, there are a few that have dominated the industry. By doing this they have commanded the attention of traders and thus are liquid products.
Today we will look at broad market ETF's and their uses for the retail investor.
A broad market ETF is one that covers a whole market such as the S&P 500. The goal of these ETF's is to replicate the performance of the S&P 500 all in one vehicle. This allows essentially a "one stop shop" for those that just want similar performance to the S&P 500 without the headache of buying 500 stocks.
The most popular ETF that tracks the S&P 500 is offered by a company called State Street Advisors and can be found under the ticker (NYSE: SPY). Traders (and the company) refer to this product as the Spiders (SPDR), which is just an acronym for Standard and Poor's Depository Receipt. The beauty of this symbol is that one share is just about equal to 1/10 of the S&P 500 that you would see quoted on TV or on a local news station.
The next ETF, as you may already be able to guess, tracks the Nasdaq 100. By far the most popular, and liquid ETF for the Nasdaq 100 is offered by a company called Invesco and is named the Power Shares QQQ Trust, which trades under the ticker (NASDAQ: QQQ). Traders, and media commentators just refer to this ETF as "The Q's". This ETF takes on the same task as the SPY, hold all (or almost all) of the stocks in the Nasdaq 100 so that the one ETF (QQQ) can replicate the performance, minus the small fee that Invesco charges.
Lastly we have to look at the ever popular Dow 30. Everyone has seen on TV the reporters that say "The Dow Jones is up 70 points today", and then you look at the quote and its something around 17000. Now, no one actually pays $17000 for a share of the index, in fact you cant actually buy the Dow. So the company that brought you the SPDR's also came out with an ETF for the Dow, and guess what, they even have a catchy name for this one as well. The most popular ETF for trading the Dow 30 can be found under the ticker (NYSE: DIA). Traders refer to it simply as the Diamonds. The price of the DIA generally hovers right at about 1/100th that of the Index.
Now there are certainly others that cover the less popular sectors like the Russell 2000. There are even more ETF's that track specific sectors like Gold, or Tech, which we will dig into deeper in further articles.